§ 3.5 p.m.
§ VISCOUNT MASSEREENE AND FERRARDMy Lords, I beg to ask the Question which stands in my name on the Order Paper.
§ [The Question was as follows:
§ To ask Her Majesty's Government whether they will consider reducing the income tax payable by foreign investors in the United Kingdom in view of the greatly increased flow of capital into British industry, particularly from dollar sources, which would result from such a policy.]
§ THE MARQUESS OF LANSDOWNEMy Lords, my right honourable friend the Chancellor of the Exchequer is not in favour of a discriminatory tax relief of this nature. I assume that the intention of the special relief suggested by the noble Viscount is to encourage foreign investors to take up share capital in British companies. The United Kingdom, like many other countries engaged in international trade, adopts the general principle of taxing all income which arises within its borders, irrespective of the owner's residence, and of giving relief to its own residents for tax imposed by other countries on income arising in those countries. Consistently with this principle, the United Kingdom should grant no special relief to foreign investors in British industry. Some under-developed countries have experimented with what are termed, as your Lordships know, "pioneer industry concessions"—arrangements under which a limited holiday from taxation may be enjoyed by investors who put up money for new industries which it is desired to encourage. These tax reliefs are of doubtful justification, and apart from this, a preference in favour of foreign investors could not be adopted in a highly industrialised country like the United Kingdom.
The law, however, does allow one advantage to foreign residents who invest 790 in one specialised class of British companies. The Finance Act, 1957, introduced a new category of taxpayer called an overseas trade corporation. This, as your Lordships know, is broadly a company which conducts all its trading operations overseas but hitherto paid tax here on the whole of its profits because it was "resident" here for tax purposes—that is to say, because its board of directors exercise the final control at meetings in this country. Following a recommendation by the Royal Commission on Taxation (the Radcliffe Commission), relief was granted to such companies by excusing them from income tax and profits tax on the profits of overseas trading, though not on income from investments, so long as those profits were retained in the business and not paid away as dividends. Income tax becomes recoverable when this exempt trading income is later distributed as a dividend. The tax is not charged on dividends out of such income going to any non-resident shareholder in the company. This benefit to foreign investors in United Kingdom companies which qualify as overseas trade corporations was part of the Royal Commission's scheme and involves no derogation from the general principle that I have stated. Its justification is that the overseas trade corporation scheme recognises that in reality the profits were earned outside the borders of this country, so that the United Kingdom should not tax a non-resident on a dividend representing the distribution of those overseas profits.
§ VISCOUNT MASSEREENE AND FERRARDMy Lords, I thank the noble Marquess for his extremely comprehensive reply.